Cuban Embargo: Selected Issues Relating to Travel, Exports, and
Telecommunications (Letter Report, 12/01/98, GAO/NSIAD-99-10).

Pursuant to a congressional request, GAO reviewed the implementation and
monitoring of certain Cuban embargo provisions affecting travel,
telecommunications, and trade, focusing on: (1) whether the Department
of the Treasury, Office of Foreign Asset Control's (OFAC) decision to
allow authorized U.S. travelers to fly indirectly to Cuba was consistent
with the law; (2) whether a telecommunications agreement between
International Telephone and Telegraph (ITT) and STET International was
consistent with U.S. law; (3) how U.S. products can be available in
Cuba; (4) how U.S. agencies license and monitor U.S. travelers and
companies, including licensed air carrier providers, and exports that
are affected by the embargo's restrictions; and (5) whether the
executive branch's changes to the embargo in 1998 were consistent with
U.S. law.

GAO noted that: (1) the President's broad authority under section 5(b)
of the Trading With the Enemy Act allows the executive branch a great
deal of discretion in making changes to embargo restrictions; (2) both
flight procedures used by Treasury and the Department of Commerce were
consistent with existing U.S. law; (3) the executive branch's 1998
change that further monitors fully hosted travel is also consistent with
U.S. law; (4) GAO also believes that the agreement between ITT and STET
International regarding ITT's confiscated property in Cuba is consistent
with the applicable statutory language of Helms-Burton Act; (5) ITT has
agreed to let STET use ITT's confiscated property in Cuba over the 10
year period of the agreement, and STET provided substantial compensation
to ITT; (6) some U.S. goods can legally be exported to Cuba; (7) in most
instances, U.S. goods can also be legally exported to Cuba by non-U.S.
firms in third countries if the U.S. supplier has no knowledge that the
buyer intends to sell them to Cuba; (8) exports may also reach Cuba
illegally if businesses deliberately circumvent the embargo
restrictions; (9) according to U.S. officials, few countries cooperate
with U.S. enforcement of the embargo; (10) the executive branch's 1998
changes that expedite procedures for medical exports to Cuba and permit
licensed medical and pharmaceutical sales representatives to travel to
Cuba are consistent with the 1992 Cuban Democracy Act, which
specifically authorizes medical exports, and OFAC's licensing authority
under the Cuban Asset Control Regulations; (11) OFAC is primarily
responsible for implementing the Cuba embargo, the Bureau of Export
Administration licenses exports, and the Customs Service enforces the
embargo at U.S. borders; (12) Customs seizes contraband and refers
potential civil violations to OFAC and potential criminal violations to
the Department of Justice (DOJ); (13) DOJ officials told GAO they have
not prosecuted many Cuba embargo cases partly due to the difficulty of
proving specific intent to violate the law; (14) they also indicated
that the lack of significant monetary impact of Cuban embargo cases and
jury appeal where humanitarian issues may be present are factors to be
considered in these cases; (15) in 1998, the executive branch changed
family remittance procedures to allow U.S. persons to send general
family remittances of up to $300 per quarter to relatives in Cuba; and
(16) based on GAO's review of all the applicable statutory language, GAO
believes OFAC had the authority to make the family remittance changes
under its general legislative authority.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-99-10
     TITLE:  Cuban Embargo: Selected Issues Relating to Travel, Exports, 
             and Telecommunications
      DATE:  12/01/98
   SUBJECT:  Foreign governments
             International relations
             International trade
             Export regulation
             Foreign trade policies
             Telecommunication
             International trade restriction
             International travel
IDENTIFIER:  Cuba
             
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Cover
================================================================ COVER


Report to the Honorable
Dan Burton, Chairman, Committee on Government Reform and Oversight
House of Representatives

December 1998

CUBAN EMBARGO - SELECTED ISSUES
RELATING TO TRAVEL, EXPORTS, AND
TELECOMMUNICATIONS

GAO/NSIAD-99-10

Cuban Embargo

(711301)


Abbreviations
=============================================================== ABBREV

  AT&T - AT&T Corporation
  BXA - Bureau of Export Administration
  CACR - Cuban Assets Control Regulations
  CDA - Cuban Democracy Act
  FCC - Federal Communication Commission
  ITT - International Telephone and Telegraph
  LIBERTAD - Cuban Liberty and Democratic Solidarity
  MCI - MCI Communications
  OFAC - Office of Foreign Assets Control

Letter
=============================================================== LETTER


B-281123

December 1, 1998

The Honorable Dan Burton
Chairman, Committee on Government
  Reform and Oversight
House of Representatives

Dear Mr.  Chairman: 

In 1962, the United States imposed an economic embargo against Cuba
that has been modified over the years by legislation and presidential
actions.  At your request, we reviewed the implementation and
monitoring of certain embargo provisions affecting travel,
telecommunications, and trade.  Specifically, we examined (1) whether
the decision of the Department of the Treasury's Office of Foreign
Assets Control (OFAC) to allow authorized U.S.  travelers to fly
indirectly to Cuba by taking chartered aircraft that touched down and
changed flight numbers in third countries and then flew on to Cuba
was consistent with U.S.  law; (2) whether a telecommunications
agreement between International Telephone and Telegraph (ITT) and
STET International (an Italian telecommunications company) was
consistent with U.S.  law; (3) how U.S.  products can be available in
Cuba; and (4) how U.S.  agencies license and monitor U.S.  travelers
and companies, including licensed air carrier providers, and exports
that are affected by the embargo's restrictions.  You also asked that
we determine whether the executive branch's changes to the embargo in
1998 were consistent with U.S.  law.  As requested, we are also
providing information on the telecommunications provisions of the
Cuban Democracy Act of 1992 (CDA), Cuba's imports, and U.S. 
restrictions on imports containing Cuban components in appendixes
I-III. 


   BACKGROUND
------------------------------------------------------------ Letter :1

To implement the embargo, the Treasury Department, in 1963, issued
the Cuban Assets Control Regulations (CACR),\1 under the authority of
the Trading With the Enemy Act of 1917, as amended,\2 which confers
broad authority on the President to impose embargoes on foreign
countries.  The CACRs prohibit U.S.  persons from engaging in any
financial transactions with Cuban entities, including those related
to travel and exports.\3 In recent years, Congress has added other
embargo measures--enacting the CDA of 1992 \4 and the Cuban Liberty
and Democratic Solidarity (LIBERTAD) Act of 1996 (also known as the
Helms-Burton Act).\5 The CDA restricts U.S.-owned or -controlled
firms in third countries from exporting to Cuba and authorizes
humanitarian and telecommunications exports.  The Helms-Burton Act
codified the embargo in effect on March 1, 1996, and added other
provisions related to the rights of U.S.  citizens whose property has
been confiscated by the Cuban government. 

In March 1998, the President announced (1) the restoration of direct
charter flights between the United States and Cuba for authorized
U.S.  travelers, (2) a plan to streamline and expedite licensing
procedures for medical exports, and (3) the reinstitution of family
remittances up to $300 per quarter from persons in the United States
to their families in Cuba.  Subsequently, OFAC added the requirement
that "fully hosted"\6 travelers must, when requested, supply proof
that costs associated with their travel to Cuba were paid for by a
non-U.S.  entity. 


--------------------
\1 31 C.F.R.  pt.  515. 

\2 50 U.S.C.  app.  ï¿½ 5(b). 

\3 For this report, the term "U.S.  persons" refers to "persons
subject to U.S.  jurisdiction." Under the CACRs, this term includes
(1) U.S.  citizens or residents, (2) any person actually within the
United States, and (3) corporations organized in the United States or
any U.S.  state or territory.  31 C.F.R.  ï¿½515.329. 

\4 22 U.S.C.  ï¿½ï¿½ 6001 and following. 

\5 Id.  ï¿½ï¿½ 6021 and following. 

\6 Fully hosted travelers refer to U.S.  persons who make no currency
transfers to Cuba before, during, or after their travel to Cuba.  All
their travel expenses in Cuba are paid for by other individuals or
entities, including payments to Cuban air carriers.  See 63 Fed. 
Reg.  27350 (May 18, 1998).  Fully hosted travelers continue to be
prohibited from taking direct flights between the United States and
Cuba. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The President's broad authority under section 5(b) of the Trading
With the Enemy Act allows the executive branch a great deal of
discretion in making changes to embargo restrictions.  Both flight
procedures used by the Department of the Treasury and the Department
of Commerce--those for indirect flights between February 1996 and May
1998 and those for direct flights adopted in 1998 for passengers and
cargo--were consistent with existing U.S.  laws.  In addition, the
executive branch's 1998 change that further monitors fully hosted
travel is also consistent with existing U.S.  law. 

We also believe that the agreement between ITT and STET International
regarding ITT's confiscated property in Cuba is consistent with the
applicable statutory language of the Helms-Burton Act.  ITT has
agreed to let STET use ITT's confiscated property in Cuba over the
10-year period of the agreement, and STET provided substantial
compensation to ITT. 

Some U.S.  goods such as humanitarian items like food, clothing, and
medicines, can legally be exported to Cuba.  In most instances, U.S. 
goods can also be legally exported to Cuba by non-U.S.  firms in
third countries if the U.S.  supplier has no knowledge that the buyer
intends to sell them to Cuba.  However, no reliable data are
available on the amount of such trade.  Exports may also reach Cuba
illegally if businesses deliberately circumvent the embargo
restrictions.  According to U.S.  officials, few countries cooperate
with U.S.  enforcement of the embargo. 

The executive branch's 1998 changes that expedite procedures for
medical exports to Cuba and permit licensed medical and
pharmaceutical sales representatives to travel to Cuba are consistent
with the 1992 CDA, which specifically authorizes medical exports, and
OFAC's licensing authority under the CACRs. 

OFAC is primarily responsible for implementing the Cuba embargo, the
Commerce Department's Bureau of Export Administration (BXA) licenses
exports, and the Customs Service enforces the embargo at U.S. 
borders.  Customs seizes contraband--both goods and currency--and
refers potential civil violations to OFAC and potential criminal
violations to the Justice Department.  Justice officials told us they
have not prosecuted many Cuba embargo cases partly due to the
difficulty of proving specific intent to violate the law.  They also
indicated that the lack of significant monetary impact of Cuban
embargo cases and jury appeal where humanitarian issues may be
present are factors to be considered in these cases.  Justice has
prosecuted 10 cases related to export and travel violations in the
last 6 years. 

In 1998, the executive branch, citing humanitarian reasons, changed
family remittance procedures to allow U.S.  persons to send general
family remittances of up to $300 per quarter to relatives in Cuba. 
Because these changes will likely result in increased transfers of
currency to Cuba, they do not appear to further the general purpose
of the embargo--that is, to limit the flow of hard currency from the
United States to Cuba.  However, the President's broad authority over
the conduct of foreign affairs as well as that under section 5(b) of
the Trading With the Enemy Act allows the executive branch a great
deal of discretion in making changes to embargo restrictions.  In
addition, the CACRs provide specific authority to the Treasury
Secretary to modify the restrictions in the CACR "by means of
regulations, rulings, instructions, licenses, or otherwise."
Consequently, based on our review of all the applicable statutory
language, we believe OFAC had the authority to make the family
remittance changes under its general licensing authority. 

Over the course of its implementation, the Cuba embargo has both been
strengthened by the law and regulations, including the Helms-Burton
Act, and loosened to allow humanitarian assistance.  Although we were
not able to quantify illegal trade to Cuba, these laws and
regulations have afforded a measure of control over the movement of
people and goods from the United States to Cuba. 


   INDIRECT AND DIRECT FLIGHTS TO
   CUBA ARE CONSISTENT WITH U.S. 
   LAW
------------------------------------------------------------ Letter :3

We believe that OFAC's decision to permit U.S.-licensed air carrier
service providers to charter foreign aircraft that landed in a third
country, changed flight numbers, and then flew on to Cuba independent
of the U.S.  carrier service provider was consistent with its legal
authority.  We also believe that the executive branch's decisions to
restore direct U.S.  flights to Cuba of both persons and cargo and to
further monitor fully hosted travel to Cuba were consistent with the
existing law. 


      TRAVEL RESTRICTIONS IN THE
      CACR
---------------------------------------------------------- Letter :3.1

No U.S.  statute currently establishes overall restrictions on travel
to Cuba.  The restrictions on travel are regulatory and are set forth
in the CACRs.  These restrictions do not prohibit travel to Cuba
itself but do preclude most U.S.  persons from spending money on
travel to Cuba.  The primary purpose of the travel restrictions is to
stop the flow of hard currency from the United States to Cuba. 

The CACRs allow limited categories of U.S.  persons to spend money on
travel to Cuba without seeking OFAC approval.  These include (1)
official government travelers; (2) journalists; and (3) once per
year, persons traveling to visit close relatives in Cuba under
circumstances of extreme humanitarian need.  In addition, U.S. 
persons whose expenses are fully paid by a non-U.S.  person,
including a Cuban or the Cuban government, may also travel to Cuba
without OFAC approval.  Additional categories of U.S.  persons may
travel to Cuba if they obtain a specific license from OFAC to do
so.\7

Authorized travelers to Cuba may spend no more than $100 per day in
Cuba for items directly related to travel.  Travelers may also bring
back to the United States a maximum of $100 worth of Cuban
merchandise purchased for personal use, but only once every 6
consecutive months.  These travelers may also pay for all
transportation-related transactions involving travel to and from
Cuba, but no more than $500 may be paid to Cuba in any 12-month
period for fees imposed by Cuba. 


--------------------
\7 Examples include (1) people traveling more than once a year to
visit close relatives in Cuba under circumstances of extreme
humanitarian need, (2) recognized human rights organizations that are
investigating human rights violations, and (3) companies negotiating
the performance of telecommunications agreements for service between
the United States and Cuba. 


      INDIRECT FLIGHTS TO CUBA
      DURING 1996-98
---------------------------------------------------------- Letter :3.2

Prior to February 1996, the United States permitted authorized
carrier service providers to arrange direct flights between the
United States and Cuba.  Following the shootdown of two "Brothers to
the Rescue"\8 aircraft on February 26, 1996, the President suspended
all direct flights between the United States and Cuba.  OFAC then
notified authorized carrier service providers that they could arrange
indirect flights provided that U.S.  responsibility for such flights
ended in the third country.  Authorized travelers could travel to
Cuba by changing flights in the third country and flying on to Cuba. 
Under this procedure, responsibility for the second leg of the flight
had to be assumed by a non-U.S.  tour sponsor using non-U.S. 
aircraft and flight crews.  Moreover, at that time, the requirement
to change flights meant a change of aircraft. 

According to OFAC, several problems arose regarding air carrier
service to third countries.  First, OFAC became aware that most air
service between the third-country destinations and Cuba was provided
by a Cuban airline.  Since authorized travelers had to pay the
airline for tickets, additional U.S.  currency was provided to Cuba. 
Second, authorized travelers' need to carry currency to meet expenses
in third countries significantly complicated Customs' outbound search
in the United States for excess currency going to Cuba.  Third, since
all travelers to Cuba--both legal and illegal--were going through
third countries, Customs had to deal with assertions by some
travelers that their final destination was the third country and not
Cuba.  Thus, Customs could not act with certainty about how much U.S. 
currency each passenger could legitimately take.  And finally,
travelers' need to change aircraft in the third country often
resulted in substantial delays or overnight stays for passengers
awaiting connecting flights, thereby necessitating the possession of
additional funds. 

To address these problems, OFAC informed all carrier service
providers by letter dated July 9, 1996, that they could permit
authorized travelers to remain on board the non-U.S.  aircraft for a
continuing flight to Cuba from a third country, provided that the
flight number was changed and the U.S.  service provider's
responsibility for the second leg of the flight ended in the third
country. 

We find OFAC's July 9 change in procedure to be consistent with its
authority under section 5(b) of the Trading With the Enemy Act, which
conferred broad authority on the President and, by delegation to
OFAC, to implement comprehensive embargoes against foreign countries. 
This change is consistent with section 102(h) of the Helms-Burton
Act.
Section 102(h) states that "the economic embargo of Cuba, as in
effect on March 1, 1996, including all restrictions under part 515 of
title 31, Code of Federal Regulations, shall be in effect upon the
enactment of this Act, and shall remain in effect, subject to section
204 of this Act." Under 31 C.F.R.  ï¿½ 515.201, financial transactions
with Cuba, which include travel expenses, are generally prohibited
except as specifically authorized by the Secretary of the Treasury by
regulations, licenses or otherwise.  Section 204 requires a
presidential determination that a transition government in Cuba is in
power before the economic sanctions can be either suspended or
terminated. 

The conference report accompanying the act explains that section
102(h) was not intended to prohibit executive branch agencies from
amending existing regulations to tighten economic sanctions on Cuba
or to otherwise implement Helms-Burton.  According to OFAC, two of
the principal purposes of the July 9 procedure were to afford greater
U.S.  control over flights and passengers, and to reduce currency
transfers to Cuba resulting from authorized travelers flying from
third countries to Cuba on a Cuban airline. 


--------------------
\8 A Miami Cuban group. 


      DIRECT FLIGHTS TO CUBA ARE
      CONSISTENT WITH U.S.  LAW
---------------------------------------------------------- Letter :3.3

In May 1998, the executive branch released its regulations for the
resumption of direct passenger charter flights between Miami,
Florida, and Havana, Cuba, effective June 15, 1998.  Under the
revised procedures, U.S.-licensed carrier service providers can
arrange direct flights to Cuba, using either U.S.  or non-U.S. 
aircraft and flight crews.  The executive branch also restored direct
humanitarian cargo flights between the United States and Cuba and
imposed additional monitoring procedures on fully hosted travel to
Cuba.  Regarding the latter, it established a presumption that U.S. 
persons who travel to Cuba without authorization have engaged in
prohibited travel-related transactions.  Fully hosted travelers can
rebut this presumption by giving federal enforcement agencies, upon
request, relevant supporting documentation showing that they have not
engaged in prohibited transactions. 

According to OFAC, restoration of direct flights between the United
States and Cuba is likely to give U.S.  enforcement
agencies--primarily Customs and OFAC--greater control over U.S. 
persons and humanitarian cargo than they had on flights routed
through third countries.  Enhanced control also appears to reduce, to
some extent, the potential for illegal transfers of currency into
Cuba. 

We concur with OFAC's position regarding the executive branch's
authority to restore direct flights.  We also believe that it is
within OFAC's authority to strengthen the monitoring procedures on
fully hosted travel to Cuba.  Among other things, this restriction is
intended to make it more difficult for travelers to spend money in
Cuba.\9

Since all these changes will assist Customs and OFAC in enforcing the
embargo by providing greater control over travel to Cuba, they are
consistent with the embargo as codified by Helms-Burton. 


--------------------
\9 See 63 Fed.  Reg.  27350-51 (May 18, 1998).  OFAC officials,
however, have indicated that enforcement cases may be difficult to
prove under this new restriction. 


   AGREEMENT ON USE OF CONFISCATED
   PROPERTY IS CONSISTENT WITH
   U.S.  LAW
------------------------------------------------------------ Letter :4

A number of provisions in the 1996 Helms-Burton Act relate to U.S. 
property confiscated by the Cuban government.  Title III of the
Helms-Burton Act establishes a private right of action for U.S. 
persons or entities against others who knowingly and intentionally
have trafficked in property confiscated by the Cuban government on or
after January 1, 1959.  Under title III, the term "traffics" includes
a broad range of activities undertaken without the authorization of
the U.S.  national who holds a claim to the property.  Title IV of
the act authorizes the Secretary of State to deny a visa to, and the
Attorney General to exclude from the United States, an alien that the
Secretary determines has confiscated or trafficked in property owned
by a U.S.  national.  For title IV sanctions to apply, the
trafficking had to occur on or after March 12, 1996.\10

After enactment of Helms-Burton, the State Department began an
investigation of STET International, an Italian firm, which benefits
from the use of ITT property confiscated in Cuba.  Before State
concluded its investigation on July 15, 1997, ITT and STET entered
into an agreement under which ITT (1) allowed STET to use its
confiscated property and (2) waived its right to bring any action
against STET for such use, for a 10-year period.  ITT also agreed to
cooperate with STET in contacts with State to help ensure that no
STET personnel would be excluded from the United States under title
IV.  In exchange, STET agreed to make a substantial one-time payment
to ITT.  In July 1997, State terminated its investigation. 
Subsequently, STET paid ITT the agreed-upon amount.  State said that
the agreement constituted a major step forward in the enforcement of
Helms-Burton, reinforced the principle of respect for the property
rights of U.S.  citizens, and would serve as a disincentive to other
foreign firms currently operating in or considering investment in
confiscated U.S.  property in Cuba without authorization of the U.S. 
claimant. 

In reviewing the agreement, State determined that as long as it is
implemented in accordance with its terms, for the 10-year period
covered, STET's use of ITT's confiscated property will not constitute
"trafficking." The term traffics does not apply when U.S.  nationals
authorize other parties to make use of confiscated property for which
they have claims.  According to State, claimants may waive the title
III private right of action.  State also pointed out that the amount
STET agreed to pay ITT was not insubstantial and, as such, suggests
that the agreement was not a subterfuge for avoiding the intent of
titles III and IV. 

We have reviewed the agreement and State's analysis and find the
agreement consistent with the language and intention of titles III
and IV of Helms-Burton.  The agreement would appear to preclude STET
from being considered a trafficker in ITT's confiscated property, at
least for the 10-year period covered by the agreement. 


--------------------
\10 The President may suspend the provisions of title III for
successive 6-month periods and President Clinton has done so since
enactment of Helms-Burton.  Unlike title III, however, the provisions
of
title IV cannot be suspended. 


   EMBARGO RESTRICTIONS ON U.S. 
   EXPORTS TO CUBA
------------------------------------------------------------ Letter :5

The embargo against Cuba prohibits the export of U.S.  goods and
technology to Cuba, with limited exceptions.  The exceptions include
gift parcels, food and agricultural items, medicines and medical
equipment, items donated by recognized charities, and certain
non-humanitarian goods.  Commerce's BXA licenses some items while
some items qualify for exceptions to BXA licensing requirements.\11


--------------------
\11 OFAC has the authority to license exports from foreign
subsidiaries of U.S.  firms and U.S.  firms abroad.  However, as
mentioned above, the CDA specifically precludes U.S.-owned or
-controlled foreign firms in third countries from exporting to Cuba. 


      LICENSED EXPORTS
---------------------------------------------------------- Letter :5.1

BXA licenses exports that are made in the United States or that are
made by foreign firms and contain certain percentages of U.S. 
components.  Limited categories of goods can be exported to Cuba only
after the exporter has sought a license.  The CDA specifically
authorizes exports of medicines, medical supplies, instruments and
equipment, and pharmaceuticals, and BXA licenses these exports.\12
BXA also reviews and licenses exports on a case-by-case basis of (1)
certain telecommunications commodities; (2) nonstrategic,
foreign-made products that contain insubstantial proportions of
U.S.-origin materials, parts, or components; (3) certain commodities
and software used by human rights organizations or individuals and
nongovernmental organizations that promote independent activity
intended to strengthen civil society in Cuba; and (4) certain
commodities and software to U.S.  news bureaus in Cuba. 


--------------------
\12 The CDA authorizes medical exports to Cuba unless (1) restricted
by pertinent provisions of the Export Administration or the
International Emergency Economic Powers Acts; (2) there is a
reasonable likelihood they will be used for torture or other human
rights abuses or will be reexported; (3) they could be used in the
production of any biotechnological product; or (4) the U.S. 
Government is unable to verify, by on-site inspection or other means,
that the item will be used for the purpose for which it is intended
and only for use and benefit of the Cuban people.  (22 U.S.C.  ï¿½
6004(c) and (d); subsection (a) also states that its provisions,
including those authorizing medical exports to Cuba, apply
notwithstanding any other provision of law.)


      UNLICENSED EXPORTS
---------------------------------------------------------- Letter :5.2

The two major categories of goods that can be exported to Cuba
without a BXA license are gift parcels and humanitarian donations. 
Gift parcels may include only food, vitamins, seeds, medicines,
medical supplies and devices, hospital supplies and equipment,
equipment for the handicapped, clothing, personal hygiene items,
veterinary medicines and supplies, fishing equipment and supplies,
soap-making equipment, and receive-only radio equipment and necessary
batteries for reception of commercial and/or civil AM/FM and
short-wave, publicly available frequency bands.\13 Except for gift
parcels of food, which are unrestricted, only one gift parcel valued
at no more than $200 may be sent from the same donor to the same
recipient in any 1 calendar month. 

Humanitarian donations to meet basic human needs may also be exported
to Cuba without a license.\14 However, donors must be U.S. 
charitable organizations with an established record of involvement in
donor programs.  They must also have experience in maintaining and
verifying a system of distribution in Cuba to ensure delivery to the
intended beneficiaries. 

The majority of U.S.  humanitarian exports to Cuba are donated
medicines licensed by BXA.  Actual U.S.  humanitarian exports to Cuba
in 1997 totaled $9.3 million, of which $7.4 million was donated
medicinal and pharmaceutical products, as reported by Commerce's
Bureau of the Census.  Table 1 shows official data for U.S.  exports
to Cuba for 1993-97.  (See app.  II for data on Cuban imports.)



                                Table 1
                
                     U.S. Exports to Cuba, 1993-97

                       (U.S. dollars in millions)

Commodity                         1993    1994    1995    1996    1997
------------------------------  ------  ------  ------  ------  ------
Medicinal & pharmaceutical,       $1.0    $3.4    $3.6    $4.4    $7.4
 donated
Articles donated for relief        0.1     0.6     1.2     0.8     1.3
Wearing apparel, donated           1.0     0.1     0.1     0.1     0.4
Telecommunication apparatus          0       0     0.1     0.1       0
Commingled food exports            0.1     0.1       0       0     0.1
Other                              0.3     0.2     0.8       0       0
======================================================================
Total\a                           $2.6    $4.4    $5.8    $5.5    $9.3
----------------------------------------------------------------------
\a Total may not add due to rounding. 

Source:  Department of Commerce, Bureau of the Census. 


--------------------
\13 BXA authorizes exports of gift parcels by an individual donor for
the use of the donee or the donee's immediate family. 

\14 Some donations of medicines and medical items must be
specifically licensed. 


      LEGAL AND ILLEGAL EXPORTS
      THROUGH THIRD COUNTRIES
---------------------------------------------------------- Letter :5.3

In addition to the goods excepted from the ban on exports, other U.S. 
goods can reach Cuba by being lawfully sold to buyers in third
countries who then reexport them to Cuba without the knowledge of the
U.S.  exporter.  Complicating the picture somewhat is the presence in
Cuba of goods bearing U.S.  trademarks.  These goods can be produced
in third countries under licensing arrangements with the U.S.  owner
of the trademark and subsequently exported to Cuba.  This may or may
not be a violation of U.S.  law, depending on whether the U.S.  owner
of the trademark knows that the licensee plans to market the
trademarked goods in Cuba. 

Exports may also reach Cuba illegally if businesses deliberately
circumvent the embargo restrictions.  It is difficult for U.S. 
agencies to detect illegal exports once they have left the United
States because few countries cooperate with U.S.  enforcement of the
embargo.  Most countries trade freely with Cuba, and some have
enacted legislation to ensure that their firms do not cooperate with
the U.S.  embargo.  For example, under Canadian law, judgments under
Helms-Burton are not to be recognized or enforced in Canada. 


      NEW GUIDELINES INTENDED TO
      STREAMLINE MEDICAL EXPORTS
      ARE CONSISTENT WITH U.S. 
      LAW
---------------------------------------------------------- Letter :5.4

On May 14, 1998, BXA issued guidelines describing expedited
procedures for licensing medical exports to Cuba.  The guidelines
indicated that BXA will work with exporters on the monitoring of and
on-site verification requirements for medical sales or donations to
Cuba.\15 The guidelines also provided a number of clarifications
about how to fill out the required license application forms.  As
part of the May 1998 changes, OFAC also added sales representatives
from pharmaceutical and medical companies to the categories of U.S. 
persons that could travel to Cuba under a specific license.  This
travel must be in connection with permitted sales of health care
products to Cuba. 

We believe that BXA's expediting and streamlining procedures for
medical exports to Cuba properly implement the provision in the CDA
specifically authorizing medical exports to Cuba.  We also believe
that OFAC's licensing authority under the CACRs covers its addition
of sales representatives to the categories of persons that can travel
to and spend money in Cuba.  This furthers the specific provision in
the CDA authorizing medical exports to Cuba. 


--------------------
\15 According to BXA, entities that could help comply with end-use
monitoring include, but are not limited to, representatives of the
license applicant, religious or charitable groups, third country
diplomats, and international nongovernmental organizations. 


   ROLES IN IMPLEMENTATION AND
   MONITORING
------------------------------------------------------------ Letter :6

Although the State Department plays a pivotal role in policy matters,
OFAC is primarily responsible for implementing the embargo and BXA
licenses exports.  Under their licensing authority, they define and
limit the frequency and extent of financial transactions related to
travel and exporting.  However, both agencies must rely to a great
extent on Customs, which has the primary role of enforcing the
embargo at U.S.  borders. 

OFAC licenses transactions for travel--whether direct or indirect--
by U.S.  persons and by U.S.  service providers who provide
transportation services to authorized travelers.  OFAC's small
enforcement division works closely with Customs, especially in the
application of the regulations to specific situations.  It monitors
the air carrier providers' operations, including their financial
transactions with Cuba and their business travel to Cuba.  According
to OFAC, its Miami office, established at the direction of Congress
in 1995 to strengthen enforcement, is better able to coordinate with
U.S.  Customs in Florida on potential criminal cases and is working
closely with Customs on several current cases.  It also provides a
local presence for licensing travelers and educating the public about
the embargo's requirements. 


      OFAC MONITORS AIR CARRIER
      SERVICE PROVIDERS
---------------------------------------------------------- Letter :6.1

Under the CACRs, OFAC licenses travel and air carrier service
providers to arrange travel and/or provide travel services to
authorized passengers visiting Cuba.  In authorizing service
providers, OFAC licenses companies that meet OFAC's compliance
requirements, which focus on service reliability, financial
integrity, and the ability to provide OFAC with documentary evidence
of compliance.  OFAC requires the service providers to submit annual
reports on the number of passengers transported and the total amount
of money transferred to Cuba. 

At the time of our review, OFAC had not reviewed the carriers'
contracts with Cuban entities or used the information submitted by
the service providers for analysis or follow up.  OFAC officials
stated that, during the time period covered by this report, existing
resources were being devoted to other enforcement matters, such as
monitoring the operational requirements for all service providers and
issuing humanitarian licenses for travel.  OFAC officials also noted
that the availability of further resources would result in enhanced
oversight of the regulated community. 

We reviewed OFAC files pertaining to licensing, reporting, and other
routine matters for the three carrier service providers actively
flying authorized passengers to third countries in 1997.  We found
that some data related to currency transfers to Cuba seemed
inconsistent with the number of passengers transported to Cuba.  For
example, one carrier's report of currency transfers to Cuba during
1997 included a significant amount for passengers actually
transported in 1996, but the carrier reported the number of
passengers transported in 1997 only.  Thus, we were not able to
compare the amounts of currency transferred to Cuba per passenger by
the three air carriers, although we noted certain apparent
differences in total amounts transferred. 

We questioned OFAC about the difficulty in assessing the currency
transfers to Cuba reported by the three air carrier service
providers.  OFAC pointed out that it requires only the total currency
transfer to Cuba during the year and does not request information
about liabilities incurred.  OFAC subsequently conducted an on-site
check during April 1998 and verified that Cuba charges each carrier
service provider the same amount per ticket sold.  OFAC told us that
the differences could be explained partly by other fees, such as visa
fees, and partly by differences among the service providers in the
timing of their payments. 

OFAC officials told us that they found other accounting problems with
two of the service providers during their review.  OFAC suspended
indefinitely the two air carriers' authorizations to provide services
to Cuba, effective September 28, 1998, with the provision that each
may engage in travel transactions through October 14, 1998, in order
not to strand authorized passengers who departed the United States
prior to September 30 aboard flights originated by either air
carrier. 


      BXA'S ROLE IN MONITORING
      AUTHORIZED EXPORTERS
---------------------------------------------------------- Letter :6.2

Because of the difficulty in monitoring all goods exported, both OFAC
and BXA rely on exporters' voluntary adherence to export regulations. 
In addition, humanitarian organizations are permitted to self-certify
their eligibility to export to nongovernmental organizations in Cuba
without seeking BXA approval.  According to BXA officials, BXA does
require enhanced record-keeping measures, but it only occasionally
monitors these organizations. 

For goods that are licensed, BXA specifies a ceiling on the amount of
exports that the licensee may export, but exporters have used only a
small proportion of the total authorized amount.  For example, actual
1997 exports to Cuba amounted to $9.3 million, according to Customs,
but the total value of potential exports that BXA licensed in 1997
was about $341 million.  Tables 2 and 3 indicate the authorized and
actual amounts of exports for humanitarian donations and for medicine
and medical equipment for 1993-97. 



                                Table 2
                
                U.S. Authorized and Actual Humanitarian
                       Donations to Cuba, 1993-97

                       (U.S. dollars in millions)

Data                           1993   1994   1995   1996   1997  Total
----------------------------  -----  -----  -----  -----  -----  =====
Authorized exports            $559.  $517.  $526.  $538.  $340.  $2,48
                                  8      5      3      6      7    2.9
Actual exports                 $2.6   $4.4   $5.8   $5.5   $9.3  $27.6
----------------------------------------------------------------------
Source:  Department of Commerce, Bureau of Export Administration and
Bureau of the Census. 



                                Table 3
                
                U.S. Authorized and Actual Medicine and
                Medical Equipment Exports to Cuba, 1993-
                                   97

                       (U.S. dollars in millions)

                                                                 Total
Data                           1993   1994   1995   1996   1997     \a
----------------------------  -----  -----  -----  -----  -----  =====
Authorized exports            $12.2  $39.2  $113.  $21.0  $88.7  $274.
                                                8                    8
Actual exports                 $1.0   $3.4   $3.6   $4.4   $7.4  $19.8
----------------------------------------------------------------------
\a Total may not add due to rounding. 

Source:  Department of Commerce, Bureau of Export Administration and
Bureau of the Census. 


      CUSTOMS MONITORS TRAVELERS
      AND EXPORTS
---------------------------------------------------------- Letter :6.3

Although BXA and OFAC rely on Customs to enforce their regulations at
U.S.  borders, Customs officials told us that demands on its
resources prevent it from examining all departing passengers and
cargo destined for Cuba, given its multiple enforcement priorities. 
The Customs Service office in Miami, Florida, monitors departing
passengers and shipments at random and, during fiscal year 1996,
Customs made 20 seizures of currency totaling $256,158 that was being
transported in violation of the CACRs.  During fiscal year 1997,
Customs made 14 seizures totaling $109,376.  Customs refers criminal
violations to the Justice Department or civil violations to OFAC if
warranted.  Customs officials said they refer few cases to the
Justice Department because violations tend to be insignificant in
value and thus do not meet the criteria for prosecution.  According
to the U.S.  Attorney's Office in Miami, the minimum for prosecuting
a currency violation is generally $10,000. 

The U.S.  Attorneys' offices have brought few prosecutions for
violations of restrictions on travel and exports to Cuba over the 36
years of the embargo's history.  Officials of the U.S.  Attorney's
Office in Miami told us that this situation is partly due to the
difficulty in accumulating the required proof that persons suspected
of a violation had both knowledge of the embargo and the specific
intent to violate it.  They also told us that the lack of significant
monetary impact of Cuban embargo cases and jury appeal where
humanitarian issues may be present are factors to be considered in
these cases.  Nevertheless, they said that their office has begun to
put more emphasis on violations of the embargo.  One recent export
case involving the illegal export of up to $400 million in goods
resulted in several convictions and the imposition of significant
fines.  The discovery of this violation came from informants, rather
than any monitoring done by OFAC, BXA, or Customs.  Table 4
summarizes the roles of key agencies that implement the embargo
against Cuba. 



                                     Table 4
                     
                      Roles of Key Agencies in Implementing
                                the Cuban Embargo

Agency          Activity        Exceptions      Restrictions    Enforcement
--------------  --------------  --------------  --------------  ----------------
State           Coordinates     Not applicable  Not applicable  Not applicable
                U.S. foreign
                policy for
                Cuba

Treasury/OFAC   OFAC licenses   U.S.            License is      Customs enforces
and Customs     individuals'    government      valid for a     at U.S. borders
                travel to Cuba  officials,      specified time  and checks about
                                journalists,    period; U.S.    20 percent of
                                and persons     currency is     departing
                                visiting close  limited to      flights going to
                                relatives in    $100/day, on    Cuba from the
                                Cuba once per   departure all   Miami, Florida,
                                year for        passengers      airport.
                                humanitarian    make
                                reasons, and    declaration to
                                fully hosted    Customs as to
                                travelers       amount of
                                                currency they
                                                are taking.

Treasury/OFAC   Licenses (1)    None            Must meet OFAC  Ad hoc
                travel service                  criteria and    compliance
                providers and                   maintain        reviews in Aug./
                (2) carrier                     adequate        Sept. 1997 and
                service                         records to      Apr. 1998;
                providers                       ensure OFAC     Customs and OFAC
                                                that all        coordinate
                                                regulations     enforcement
                                                and directives  actions.
                                                are being
                                                followed.

Treasury/OFAC   Authorizes      Amounts under   $300 per        Customs enforces
                family          $300 per        quarter to a    at U.S. borders.
                remittances     quarter         close relative  Remitttance
                                permitted                       forwarders are
                                                                required to
                                                                maintain records
                                                                and report
                                                                summary data to
                                                                OFAC.

Treasury/OFAC   Takes action    Determined on   Not applicable  OFAC takes
                on civil        a case-by-                      penalty action,
                violations      case basis                      including
                                                                assessing and
                                                                collecting
                                                                fines, as
                                                                appropriate.

Commerce/BXA;   BXA licenses    None            Consolidator    Consolidators
Customs         consolidators                   may export up   are responsible
                of gift                         to the total    to ensure that
                parcels\a                       dollar amount   parcels contain
                                                authorized by   allowable items,
                                                the BXA         that the value
                                                license.        does not exceed
                                                                $200, and that
                                                                individuals send
                                                Individual may  only one parcel
                                                send one per    per month.
                                                month to same
                                                recipient,      Commerce does
                                                $200 maximum,   not regularly
                                                except for      monitor. One BXA
                                                food, which is  audit since 1996
                                                not             found only minor
                                                restricted.     problems.
                                                                Customs
                                                                generally
                                                                examines exports
                                                                on a random
                                                                basis and
                                                                collects export
                                                                documents to
                                                                provide Census
                                                                with export
                                                                data.

Commerce/BXA;   BXA licenses    No specific     Exporter may    BXA does not
Customs         medicine,       license needed  send no more    track amount of
                medical         when sent in a  than the total  authorized
                equipment       gift parcel\a   dollar amount   exports actually
                                                authorized by   shipped; Customs
                                                the BXA         generally
                                                license, which  examines U.S.
                                                is valid for 2  exports on a
                                                years.          random basis,
                                                                and collects
                                                                export documents
                                                                to provide
                                                                Census with
                                                                data.

Commerce/BXA;   BXA licenses    No specific     Exporter may    BXA does not
Customs         food/           license needed  send no more    track amount of
                agriculture     when sent in a  than the total  authorized
                                gift parcel\a   dollar amount   exports actually
                                                authorized by   shipped; Customs
                                                the BXA         generally
                                                license, which  examines U.S.
                                                is valid for 2  exports on a
                                                years.          random basis,
                                                                and collects
                                                                export documents
                                                                to provide
                                                                Census with
                                                                data.

Commerce/BXA;   BXA licenses    None            Exporter may    BXA does not
Customs         non-                            send no more    track amount of
                humanitarian\b                  than the total  authorized
                exports                         dollar amount   exports actually
                                                authorized by   shipped; Customs
                                                the BXA         generally
                                                license, which  examines U.S.
                                                is valid for 2  exports on a
                                                years.          random basis,
                                                                and collects
                                                                export documents
                                                                to provide
                                                                Census with
                                                                data.


Commerce/BXA;   BXA authorizes  No specific     Organization    BXA occasionally
Customs         exports of      license needed  self-           reviews export
                donations by                    certifies that  documents filed
                recognized                      it meets all    by Customs and
                charities                       BXA criteria,   may audit the
                                                including       organizations at
                                                ensuring that   any time;
                                                goods reach     Customs
                                                intended        generally
                                                beneficiaries.  examines U.S.
                                                                exports on a
                                                                random basis,
                                                                and collects
                                                                export documents
                                                                to provide
                                                                Census with
                                                                data.

Justice/U.S.    Prosecutes      Decisions to    Not applicable  Not applicable
Attorneys'      criminal        prosecute are
Offices         violations      determined on
                referred by     a case-by-
                Customs         case basis.
--------------------------------------------------------------------------------
\a Permitted items are limited to food, which has no limits on the
value, vitamins, seeds, medicines, medical supplies and devices,
hospital supplies and equipment, equipment for the handicapped,
clothing, personal hygiene items, veterinary medicines and supplies,
fishing equipment and supplies, soap-making equipment, and
receive-only radio equipment and necessary batteries for reception of
commercial and/or civil AM/FM and short-wave, publicly available
frequency bands.  It should also be noted that shippers of these
parcels are licensed by BXA. 

\b Includes telecommunications, weather, air traffic control,
scientific, news bureau, and pro-democracy items, and medicines and
medical equipment sales. 


   PRESIDENT'S 1998 CHANGES TO
   FAMILY REMITTANCE REGULATIONS
------------------------------------------------------------ Letter :7

The changes in the general family remittance procedures will likely
result in increased transfers of currency to Cuba.  Although these
changes may have been made for humanitarian reasons, they do not
appear to further the general purpose of the embargo--that is, to
limit the flow of hard currency from the United States to Cuba. 
However, the President's broad authority over the conduct of foreign
affairs as well as that under
section 5(b) of the Trading With the Enemy Act allows the executive
branch a great deal of discretion in making changes to embargo
restrictions. 


      HISTORY OF FAMILY
      REMITTANCES
---------------------------------------------------------- Letter :7.1

Between October 1991 and August 30, 1994, the CACRs permitted U.S. 
persons aged 18 years or older to make general family remittances\16
to close family members in Cuba in amounts not exceeding $300 in any
consecutive 3-month period.\17 On August 20, 1994, however, the
President announced steps to limit the ability of the Cuban
government to accumulate foreign exchange, and on August 30, 1994,
new family remittances regulations were issued.\18 Under these
regulations, U.S.  persons could send money to close relatives in
Cuba only if they first obtained a specific license from OFAC and the
remittances were being made under circumstances of extreme
humanitarian need.  Notwithstanding this limited authority, according
to OFAC, its general operating policy was not to grant licenses for
these remittances. 


--------------------
\16 See 63 Fed.  Reg.  27348 (May 18, 1998).  The executive branch
stated that there had been no change in the authorization permitting
emigration remittances of up to $1,000 on a one time basis to close
relatives in Cuba.  Sections 515.563(b) and 564(c) of the CACRs
authorize U.S.  persons to make remittances of $500 to close family
members for purposes of enabling them to emigrate from Cuba to the
United States, and an additional $500 for travel-related emigration
costs.  U.S.  persons who are not close family members can only make
remittances to Cubans of $500 for travel-related emigration costs. 

\17 56 Fed.  Reg.  49847 (Oct.  2, 1991). 

\18 59 Fed.  Reg.  4884 (Aug.  30, 1994). 


      EFFECT OF 1998 CHANGES
---------------------------------------------------------- Letter :7.2

The 1998 changes to the family remittance regulations substantially
reinstated the regulations that were used between October 1991 and
August 30, 1994.  They allow a U.S.  person at least 18 years of age
to make remittances of up to $300 in any consecutive 3-month period
to a close relative in Cuba.  By eliminating the requirements that a
specific license be obtained and that remittances be made only under
circumstances of extreme humanitarian need, the changes will likely
result in increased transfers of currency to Cuba. 

According to OFAC, each of the economic sanctions programs it
implements and administers, including the Cuba embargo, has been
structured to impose broad restrictions, leaving reasonable
administrative flexibility through licensing authority to ensure that
the programs serve the foreign policy objectives for which they were
imposed.  Furthermore, OFAC considers the executive branch's changes
to the remittance procedures a proper exercise of the President's
constitutional authority to conduct the foreign affairs of the United
States. 

As we discussed earlier, section 102(h) of Helms-Burton codified the
economic embargo of Cuba as it was in effect on March 1, 1996,
including all restrictions under 31 C.F.R.  part 515.  OFAC believes
that the restrictions referred to in section 102(h) include the
exercise of licensing authority.  Specifically, OFAC refers to 31
C.F.R.  ï¿½ 515.201, which prohibits remittances to Cuba "except as
specifically authorized by the Secretary of the Treasury .  .  .  by
means of regulations, rulings, instructions, licenses, or otherwise."
This encompasses the authority to amend the CACRs to modify license
requirements.  Thus, OFAC believes that its licensing authority
allowed it to change the family remittance regulations as a
reasonable means of adjusting the terms of the embargo. 

It is clear that the President's broad foreign affairs authority,\19
as well as that under section 5(b) of the Trading With the Enemy Act,
allows the executive branch a great deal of discretion in making
changes to embargo restrictions.\20

We believe that OFAC has the authority to make the family remittance
changes under its general licensing authority, which was included in
the codification of the embargo under section 102(h).  Moreover,
section 112 of Helms-Burton specifically addresses the reinstitution
of general licenses for family remittances.  This section expressed
the sense of Congress that prior to such reinstitution, the President
should insist that the Cuban government take steps to foster economic
freedoms for small businesses in Cuba, among other conditions. 
Congress further suggested that if a general license was
reinstituted, the administration should continue to require specific
licenses for amounts over $500.  In our view, section 112 clearly
indicates that, even after section 102(h) of Helms-Burton codified
the embargo in effect on March 1, 1996, the administration retained
the authority to reinstitute a general license for family
remittances. 

In their comments on this report, both OFAC and the Department of
State noted that the administration carefully considered the sense of
Congress, but determined that it was important to institute the
changes promptly after the Pope's visit to Cuba in January 1998. 
This was deemed necessary to expand the flow of humanitarian
assistance to Cuba.  The comments specifically stated the view that
the issue of family remittances was a matter "subject to Presidential
discretion in weighing the humanitarian purpose of allowing U.S. 
residents and citizens to support family members in Cuba against the
resulting flow of hard currency to Cuba." Nevertheless, because these
changes will likely result in increased transfers of currency to
Cuba, they do not appear to further the general purpose of the
embargo to limit such transfers. 


--------------------
\19 United States v.  Curtiss-Wright Export Corp., 299 U.S.  304
(1936). 

\20 See generally, Udall v.  Tallman, 380 U.S.  1, 16 (1965); Chevron
U.S.A., Inc., v.  Natural Resources Defense Council, 467 U.S.  837
(1984). 


   CONCLUSIONS
------------------------------------------------------------ Letter :8

The U.S.  embargo of Cuba has been in place for over 36 years.  Under
the embargo, the U.S.  government has formulated regulations that
balance policy objectives of the embargo with humanitarian needs of
Cuban-Americans with family ties to Cuba.  The embargo has been
adjusted a number of times.  Some changes tightened the embargo to
further restrict transfers of hard currency to Cuba, one of the
embargo's principal purposes, and others have loosened it in
furtherance of humanitarian considerations. 

The executive branch has broad authority under U.S.  law to make
changes in the embargo as circumstances dictate.  Overall, the
changes discussed in this report are consistent with this broad
authority.  The changes in the regulations that permit general family
remittances to Cuba may serve a humanitarian purpose, but they do not
appear to further the U.S.  objective of limiting currency transfers
to Cuba. 

In some respects, the embargo has not been easy to enforce.  It is
difficult for U.S.  enforcement agencies to monitor people and goods
once they leave U.S.  borders, and most foreign countries do not
cooperate with U.S.  embargo restrictions.  Furthermore, there have
been relatively few prosecutions of travel and export cases because
of difficulties of proof, lack of jury appeal in cases where
humanitarian issues may be present, and the relatively small amounts
of goods or currency that are involved. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :9

The Treasury Department's OFAC and the State Department provided
written comments on a draft of this report.  The Treasury's Office of
Customs, the Commerce Department's BXA, and the Department of Justice
also provided technical comments that have been incorporated where
appropriate.  OFAC and State did not agree that the President's
decision to reinstitute the authorization for family remittances was
inconsistent with the fundamental purpose of the embargo.  OFAC and
State stated that the issue of family remittances is a matter of
presidential discretion in weighing the humanitarian purpose of
allowing U.S.  residents and citizens to support family members in
Cuba against the resulting flow of hard currency to Cuba.  OFAC and
State also noted that Helms-Burton does not prohibit OFAC from making
reasonable adjustments to the family remittance licensing regime. 
(See app.  IV for their comments.)

As discussed in our report, we recognize that OFAC has the authority
to make reasonable adjustments to the family remittance procedures. 
We did not intend to imply otherwise, and we have revised the report
to remove any confusion.  Our intent was to make Congress aware that
the 1998 changes to the family remittance procedures would permit
larger transfers of U.S.  currency to Cuba. 


   SCOPE AND METHODOLOGY
----------------------------------------------------------- Letter :10

In order to assess the consistency of executive branch policy with
U.S.  laws and regulations, we met with U.S.  officials at the
Departments of State, Commerce's Bureau of Export Administration,
Justice, and the Department of the Treasury's Office of Foreign
Assets Control.  We also reviewed the relevant laws, regulations,
court decisions, directives by the President, and legislative
histories of the CDA of 1992 and the LIBERTAD Act of 1996
(Helms-Burton).  In order to describe how U.S.  goods can be
available in Cuba, we consulted specialists, including the U.S. 
Customs Service and the U.S.  Attorney's Office.  For a more detailed
description of our objectives, scope, and methodology, see appendix
V. 

We conducted our review between July 1997 and August 1998 in
accordance with generally accepted government auditing standards. 


--------------------------------------------------------- Letter :10.1

As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from its issuance date.  At that time, we will provide copies of the
report to interested congressional committees; the Departments of the
Treasury, State, Commerce, and Justice; and the Director, Office of
Management and Budget.  We will also make copies available to others
on request and include it on our database of reports at our Internet
site. 

Please contact me at (202) 512-4128 if you have any questions
concerning this report.  Major contributors to this report are listed
in appendix VI. 

Sincerely yours,

Benjamin F.  Nelson, Director
International Relations and Trade Issue


PROVISIONS GOVERNING
TELECOMMUNICATIONS SERVICES
=========================================================== Appendix I

The Cuban Democracy Act (CDA) authorizes telecommunications services
and facilities between the United States and Cuba.\1 It allows
telecommunications facilities in such quantity and quality as are
necessary to provide efficient and adequate telecommunications
services between the two countries.  The Helms-Burton Act
(Helms-Burton) limited the CDA telecommunications provision by
prohibiting any U.S.  person from investing either directly or
indirectly in the domestic telecommunications network within Cuba. 
Helms-Burton also required the President to submit to Congress a
semiannual report detailing payments made to Cuba by U.S.  persons
providing telecommunications services to Cuba. 

In July 1993, the State Department set forth the executive branch's
general policy guidelines for implementing the telecommunications
provision of the CDA.  Under these guidelines, the Department of the
Treasury's Office of Foreign Assets Control (OFAC) is responsible for
licensing travel by U.S.  companies to Cuba to discuss possible
contractual arrangements and payment terms.  Commerce is responsible
for licensing the export of U.S.  telecommunications commodities to
Cuba for approved telecommunications projects to the extent that the
exports are necessary to deliver a signal to an international gateway
to Cuba.  The Federal Communications Commission (FCC) is responsible
for licensing circuits and is to consult with the appropriate
agencies regarding proposals involving new modes of communication. 
And State, in consultation with Treasury and Commerce, was to review
U.S./Cuba telecommunication policy within 12 to 18 months.\2

The FCC informed us that it authorizes and has approved only
gateway-to-gateway services between the United States and Cuba.  It
has allowed AT&T to upgrade its old undersea cable, but only to
facilitate gateway-to-gateway services. 


--------------------
\1 22 U.S.C.  ï¿½ 6004(e). 

\2 The review was to determine whether additional circuits should be
authorized to keep the service efficient and adequate and to assess
whether to allow improvements in domestic infrastructure to improve
U.S.  access to the Cuban market.  This review, however, was never
completed. 


      UNDERSEA CABLE PROJECT
      DROPPED
------------------------------------------------------- Appendix I:0.1

In 1996, AT&T Corporation (AT&T) and MCI Communications (MCI)
considered entering into an arrangement to replace AT&T's undersea
telephone cable between Florida and Cuba with a fiber-optic cable. 
This proposal was being considered because the existing cable,
installed in 1989, had been repaired at least once and was outdated. 
However, according to AT&T and MCI officials, the project was dropped
for a number of reasons, including congressional concerns about a
counterintelligence security risk posed by Cuba's possible access to
fiber-optic technology. 

As a general matter, upgrade of the undersea cable would appear to be
possible under the CDA, as amended by Helms-Burton, and the executive
branch guidelines.  These guidelines, in essence, direct the FCC to
approve proposals utilizing modes of communications already in place
between the United States and Cuba and cite the undersea cable as an
example.  The guidelines also contemplate the possibility that the
FCC will approve proposals involving new modes of communications,
such as fiber-optic cable, so long as they are approved by the
appropriate agencies. 


MAJOR EXPORTS TO CUBA
========================================================== Appendix II

From 1992 to 1996, the International Monetary Fund reported that
exports to Cuba increased from about $1.5 billion to $3.0 billion. 
The top six exporters to Cuba were Spain, Russia, Mexico, France,
Canada, and China.  In contrast, U.S.  exports remained low
throughout this period.  (See
table II.1.) The major products exported to Cuba were fuels, food,
and machinery and equipment. 



                               Table II.1
                
                   Cuba's Imports from Major Trading
                 Partners and the United States, 1992-
                                  97\a

                       (U.S. dollars in millions)

Country                        1992   1993   1994   1995   1996   1997
----------------------------  -----  -----  -----  -----  -----  -----
Spain                          $219   $209   $320   $457   $513   $522
Russia                           \b    113    272    261    508    312
Mexico                          129     69    191    391    350     \b
Canada                          103    113     63    194    187    266
China                           220    195    162    161    111    172
France                           99    138    148    163    217    233
United States                     1      3      5      6      6     10
======================================================================
Total\c                       $1,51  $1,56  $1,87  $2,64  $3,01  $2,63
                                  7      1      3      5      0      7
----------------------------------------------------------------------
\a Cuba's imports are International Monetary Fund estimates based on
reporting countries' exports. 

\b Data not available. 

\c Total does not add because data reported are for selected
exporters. 

Source:  International Monetary Fund Direction of Trade Statistics. 

Given the recent congressional interest in the export of medicine to
Cuba, we have included data reported to the United Nations by Cuba's
major trading partners on their export of medicines and
pharmaceuticals.  We also include U.S.  Census data of U.S.  exports
of medicine and pharmaceuticals to Cuba.  The United States ranked
third in 1995 (the most recent year for which the United Nations has
comprehensive commodity trade data), after China ($31.4 million) and
Spain (6.4 million).  (See
table II.2.)



                               Table II.2
                
                   Medicine Exports to Cuba By Major
                Trading Partners and the United States,
                                1995-96

                       (U.S. dollars in millions)

Country                                           1995            1996
--------------------------------------  --------------  --------------
China                                            $31.4           $18.1
Spain                                              6.4              \a
United States                                      3.6             4.4
Netherlands                                        1.0             3.5
Italy                                              1.1             2.0
Mexico                                             0.7             2.0
France                                             1.3             1.6
Canada                                             0.2             1.2
Argentina                                          0.2             0.4
----------------------------------------------------------------------
\a Data not available. 

Source:  United Nations and U.S.  Department of Commerce trade data. 


RESTRICTIONS ON IMPORTS CONTAINING
CUBAN COMPONENTS
========================================================= Appendix III

The CACRs ban imports from Cuba if the commodities (1) are of Cuban
origin; (2) are or have been transported from or through Cuba; or (3)
are made or derived in whole or in part from any article that is
grown, produced, or manufactured in Cuba.  With minor exceptions, the
import ban applies to all items that contain anything that is made in
Cuba and extends to all Cuban agricultural products, including raw
and refined sugar.  Furthermore, the ban does not allow de minimis
exceptions for goods that contain even negligible amounts of Cuban
origin materials. 

Over the course of the embargo, Congress has enacted legislation
specifically dealing with sugar imports from Cuba.  In 1963, Congress
amended the Foreign Assistance Act of 1961\1 to preclude Cuba from
receiving any quota authorizing the import of Cuban sugar into the
United States until the President determines that Cuba has taken
appropriate steps either (1) to return to U.S.  citizens and entities
the properties taken by Cuba on or after January 1, 1959, or (2) to
provide equitable compensation for their confiscation.  The President
can waive this requirement pursuant to a national interest
determination. 

Helms-Burton stated that protection of essential U.S.  security
interests required assurances that sugar products that enter the
United States or are withdrawn from warehouses for consumption in the
United States are not Cuban products.  Furthermore, any country that
desires to be allocated a U.S.  import quota for either refined or
raw sugar and is a net importer of sugar must certify to the
President, through the State Department, that its sugar exports to
the United States do not contain any sugar produced in Cuba. 
According to State Department officials, written verification was
required before October 1, 1997, to ensure that shipments under the
fiscal year 1998 quota would not be unnecessarily delayed.  State
monitors the certifications and told us that all countries complied
with this requirement. 



(See figure in printed edition.)Appendix IV

--------------------
\1 22 U.S.C.  ï¿½ 2370(a)(2). 


COMMENTS FROM THE DEPARTMENTS OF
STATE AND THE TREASURY
========================================================= Appendix III



(See figure in printed edition.)



(See figure in printed edition.)


SCOPE AND METHODOLOGY
=========================================================== Appendix V

To determine whether the Department of the Treasury's July 1996
travel procedures used for indirect flights by lawful U.S.  travelers
were consistent with the law, we researched and reviewed the laws
that deal with the embargo against Cuba, including their legislative
histories, applicable federal court decisions, the CACRs and official
OFAC circulars.  For information on Treasury's travel procedures, we
consulted OFAC officials, including OFAC attorneys.  We met with the
three carrier service providers in Miami to discuss their
perspectives on Treasury regulation and to gain an understanding of
their business operations, including costs associated with direct
flights in 1995 and indirect flights in 1997.  We visited OFAC's
Miami, Florida, office to review files and to observe the travel
procedures in action.  We met with Customs officials both in
Washington, D.C., and Miami to learn more about their enforcement of
travel regulations and how they assess whether to refer cases to
Justice or OFAC.  We also consulted Justice Department attorneys and
the U.S.  Attorney's Office in Miami to collect data on cases related
to travel violations of the embargo. 

To provide information about the availability of U.S.  products in
Cuba, we researched the legal requirements of the embargo's export
restrictions and discussed with OFAC and Commerce Department
attorneys their interpretations of the restrictions and how they work
with Justice on developing evidence for legal cases.  To gain an
understanding of the regulation and transport of humanitarian gift
packages to Cuba via third countries, we met with a gift consolidator
in Miami who is authorized to accept parcels from around the country
and to arrange for their transport to Cuba.  We witnessed the
inspection of individual packages, reviewed documentation of its
inventory for shipment, and collected some financial data from the
firm's owner.  We met with Customs officials to discuss Custom's
enforcement efforts.  We discussed with the Department of Justice and
the U.S.  Attorney's Office in Miami, Florida, those cases involving
potential violations of export restrictions, and we also reviewed and
categorized Cuban embargo-related cases that were identified by the
Justice Department. 

To address questions about telecommunications, we reviewed the law
and regulations pertaining to the embargo's telecommunications
requirements and discussed them with State and FCC attorneys.  We
consulted two attorneys representing U.S.  telecommunications firms
about their firms' consideration of a proposal for upgrading the
undersea cable between Florida and Cuba.  In addition, we reviewed
State Department documents related to the agreement between a U.S. 
telecommunications firm and an Italian firm using the U.S.  firm's
property, which had been confiscated by the Cuban government.  We
reviewed the relevant law and met with State Department attorneys to
discuss the matter. 

For information on the May 1998 regulations, we relied on official
correspondence from Treasury explaining the administration's position
on the May 1998 changes and Federal Register explanations of the
changes.  We also consulted Commerce, State, and Treasury attorneys. 

For information on Cuba's imports, we researched the law and
regulations and reviewed databases available from the Department of
Commerce, Bureau of Export Administration, and Bureau of the Census;
the United Nations; and the International Monetary Fund.  We also
consulted the State Department on the question of U.S.  imports from
other countries of products potentially containing Cuban sugar. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Virginia C.  Hughes, Assistant Director
Judith K.  Knepper, Evaluator-in-Charge
Juan Tapia-Videla, Senior Evaluator

OFFICE OF GENERAL COUNSEL,
WASHINGTON, D.C. 

Richard Seldin, Senior Attorney


*** End of document. ***